I was talking about the Harry Reid thing with one of my younger sisters the other night. She’s blunt, and her political observations often make me laugh because she’s like a liberal Frank Luntz. She said “well, when I hear ‘Mitt Romney’ now the first thing I think of is ‘taxes’ so Republicans can’t be too happy about that.”
Here’s some interesting insight into Mitt Romney and taxes. I suppose we’ll have to wait for the punditry to weigh in on whether this is a fair area of inquiry. First they objected to any examination of Bain (the central premise of Romney’s campaign). Now they’re objecting to the tone of the debate on Romney’s refusal to release his tax returns, although a central piece of Mitt Romney’s campaign has to do with cutting taxes (again!) on the very wealthy. I don’t know what we’re allowed to discuss. The Olympics. Discussion will be limited to the Olympics, but not the horse. Olympics minus horse. No wonder they’re all whining the election is boring. They’re terrified to debate anything real.
Mitt Romney’s refusal to release tax returns in the critical years of his income accumulation has done little to dispel the legitimate concern that arises from hints buried in his scant disclosure to date: Did he augment his wealth through highly aggressive tax stratagems of questionable validity?
One relevant line of inquiry, largely ignored so far, is to examine what exists in the public record regarding his attitude toward tax compliance and tax avoidance. A key troubling public manifestation of Romney’s apparent insensitivity to tax obligations is his role in Marriott International’s abusive tax shelter activity.
Romney has had a close, long-standing, personal and business connection with Marriott International and its founders. He served as a member of the Marriott board of directors for many years. From 1993 to 1998, Romney was the head of the audit committee of the Marriott board.
During that period, Marriott engaged in a series of complex and high-profile maneuvers, including “Son of Boss,” a notoriously abusive prepackaged tax shelter that investment banks and accounting firms marketed to corporations such as Marriott. In this respect, Marriott was in the vanguard of a then-emerging corporate tax shelter bubble that substantially undermined the entire corporate tax system.
Son of Boss and its related shelters represented perhaps the largest tax avoidance scheme in history, costing the U.S. many billions in lost corporate tax revenues. In response, the government initiated legal challenges that resulted in complete disallowance of the losses claimed by Marriott and other corporations.
In his key role as chairman of the Marriott board’s audit committee, Romney approved the firm’s reporting of fictional tax losses exceeding $70 million generated by its Son of Boss transaction. His endorsement of this stratagem provides insight into Romney’s professional ethics and attitude toward tax compliance obligations.
Like other prepackaged corporate tax shelters of that era, Marriott’s Son of Boss transaction was an entirely artificial transaction, bearing no relationship to its business. Its sole purpose was to create a gigantic tax loss out of thin air without any economic risk, cost or loss — other than the fee Marriott paid the promoter.
In his key position as head of the board’s audit committee, Romney was required under the securities laws and his fiduciary duties to review the transaction. In fact, it has been publicly reported that Romney was the Marriott Board member most acquainted with the transaction and to whom the other board members turned for advice. This makes sense because aggressive tax-driven financial engineering was a large part of what Romney (and Bain) did for a living. For these reasons, it is fair to hold him accountable for Marriott’s spurious tax reporting.
Romney’s campaign staff has attempted to deflect responsibility, arguing that he relied on Marriott’s tax department and advisers.
This claim is disingenuous.
He had an insider’s perspective on the motivation and lack of substance in the transaction, as well as the financial sophistication to understand the tax avoidance involved. Romney failed in his duties to Marriott and its shareholders and acted to undermine the fairness of the tax system.
What emerges from this window into corporate tax compliance behavior is the picture of an executive who was willing to go to the edge, if not beyond, to bend the rules to seek an unfair advantage, and then hide behind the advice of so-called experts to deflect criticism when a scheme backfires.Peter C. Canellos, a lawyer, is former chair of the New York State Bar Association Tax Section. Edward D. Kleinbard is a professor at Gould School of Law at the University of Southern California. He is the former chief of staff of Congress’s Joint Committee on Taxation.
I don’t know if the tax debate would have died without Harry Reid making all that noise, but I suspect it might have, because, well, a week had passed, Romney had successfully stone-walled and we had moved on to his making false claims about food stamp recipients. Let’s explore this tax issue thoroughly, before we move onto the standard “demonization of poor people” discussion.